The FTC Must Join The Fight Against Patent Bullies

According to the latest figures, patent litigation is continuing its downward trend. Fewer than 4,000 suits are projected for 2018, which is down from a high of over 5,800 in 2015. The lower numbers result, in part, from the decline of patent assertion entities (PAEs)—often pejoratively termed “patent trolls.” These firms use patents to profit by suing other patent holders for infringement, rather than using patents to produce goods or services. Congressional hearings, FTC investigations and even John Oliver have pilloried them as unproductive burdens on our court system and IP regimes.

Yet Americans are growing more and more concerned about Big Tech monopolies, which have the power to game the patent system to entrench their dominance—abusing the court system like patent trolls. These dominant firms are not just interested in receiving royalties or settlements, they also have an incentive to hurt their competitors. Indeed, Big Tech monopolies could become so-called “patent bullies” using IP litigation to hurt competitors and entrench their market power.

As David Rubinfeld & Robert Maness argue in their articleThe Strategic Use of Patents Implications for Antitrust, a “firm could employ a litigation strategy that burdens its rivals with patent suits which are costly to defend and which increase the rival’s uncertainty about its ability to sell competing products.” They show these suits do not need to end in victory, and the strategy could work regardless of the suit’s merits.

Sometimes, firms can simply use litigation or the threat of litigation to induce cross licensing or to divvy up the market. For example, in 2015, Google and Microsoft entered a Patent Truce, and Apple and Samsung did the same this summer. And just this last October, Microsoft joined the Open Innovation Network, a "patent nonaggression community" which includes companies as diverse as Red Hat and General Motors. All members of this community agree not to file suit on each other’s Linux projects.

Ideally, these agreements can save both parties litigation costs, which could be more productively invested in innovation or passed to the consumers in the form of lower prices. But these agreements can also harm smaller companies not part of the agreements. To give one example, Nielsen Holdings, of Nielsen ratings fame, has acknowledged it has a monopoly for audience measurement services, and is currently under a Federal Trade Commission (FTC) consent decree to compulsory license its intellectual property to competitors. Nielsen’s market dominance proceeds from both from its patent portfolio and the high entry costs for accumulating a network of “Nielsen families” to survey.

Strategic patent litigation can significantly raise a rivals cost in these cases. In 2016, Nielsen sued an upstart rival, Sorenson Media, which used screen tracking technology to compete against Nielsen. We’ll never know if this litigation was meritorious because Sorenson just declared bankruptcy. Litigation costs were nominal for a giant tech firm, but can be debilitate smaller competitors.

So while the decline of PAEs and patent litigation is welcome, the FTC must shift its attention to the strategic use of IP litigation by tech monopolies and other dominant players.